Exam 9: Plant and Intangible Assets

The adjusting entries to record depreciation or amortization expense or to write down assets that have become impaired:

When straight-line depreciation is in use, the depreciation rate of an asset is equal to:

Which of the following would not be considered part of the cost of equipment recently purchased?

Which of the following should not be treated as a revenue expenditure?

An asset which costs $97,600 and has accumulated depreciation of $82,000 is sold for $18,000. What amount of gain or loss will be recognized when the asset is sold?

Which of the following statements about MACRS is not correct?

An asset which costs $28,800 and has accumulated depreciation of $6,000 is sold for $21,600. What amount of gain or loss will be recognized when the asset is sold?

Various depreciation methods--two years On September 6, 2010, East River Tug Co. purchased a new tugboat for $400,000. The estimated life of the boat was 20 years, with an estimated residual value of $40,000. Compute the depreciation on this tugboat in 2010 and 2011 using the following methods. Apply the half-year convention. (If necessary, round to the nearest dollar.) 2010 2011 (a) Straight-line \ \_\_\_\_ \ \_\_\_\_ (b) 200\% -declining-balance \ \_\_\_\_ \ \_\_\_\_ (c) 150\% -declining-balance \ \_\_\_\_ \ \_\_\_\_

Compute to the nearest full month depreciation for the fractional period from January 1, 2009 to May 31 of 2009. $______________

Revenue expenditures are recorded as:

Sayville Dairy sold a delivery truck for cash of $8,680. The original cost of the truck was $33,600, and a loss of $5,320 was recognized on the sale. The accumulated depreciation at the date of sale must have been:

Evergreen Mfg. is a rapidly growing company that acquires more equipment every year. Evergreen uses straight-line depreciation in its financial statements and MACRS in its tax returns. Identify all correct statements:

The book value of an asset is equal to its cost plus accumulated depreciation.

In February 2009, Brilliant Industries purchased the Topaz Mine at a cost of $10,000,000. The mine is estimated to contain 500,000 carats of stone and to have a residual value of $500,000 after mining operations are completed. During 2009, 50,000 carats of stone were removed from the mine and sold. In this situation:

The inclusion of the intangible asset goodwill in the financial statements of a company indicates:

Once the estimated life is determined for a depreciable asset it can never be changed.

Depreciation and disposal--a comprehensive problem Domino, Inc uses straight-line depreciation with a half-year convention in its financial statements. On March 10, 2006, Domino acquired a computer system at a cost of $98,800. Estimated useful life is six years, with residual value of $5,200. (a) Complete the following schedule, showing depreciation expense Domino expects to recognize each year in the financial statements. (b) Assume Domino sells the computer system on October 3, 2009, for $26,650.

The basic purpose of the matching principle is to allocate the cost of an asset to expense over the years in which the asset contributes to revenue. Current accounting practice does not strictly apply this principle to expenditures for:

Four events pertaining to plant assets are described below. (a) Computed depreciation for use in the annual income tax return (a different method is used in the financial statements). (b) Made a year-end adjusting entry to record depreciation expense for financial reporting purposes. (c) Sold old equipment for cash at a price below its book value, but above its income tax basis. (d) Traded an old automobile in on a new one. The dealer granted a trade-in allowance on the old vehicle that was substantially above its book value and its tax basis. However, the trade-in allowance amounted to only a small portion of the price of the new car; most of the purchase price was paid in cash. Indicate the immediate effects of each of these events upon the financial measurements in the four column headings listed below. Use the code letters, I for increase, D for decrease, and NE for no effect. Note: Indicate only the immediate effects of each transaction. Do not attempt to anticipate how changes in taxable income will affect future cash flows.

Refer to the information above. Assume that in its financial statements, Tilton Products uses the 200%-declining-balance method and the half-year convention. Depreciation expense in 2009 and 2010 will be: